Tour Operations Management

Tourism Products Distributions

Module 2
 Introduction
• In matter of fact tourist require a wide range of
tourism-related services, ranging from assistance in
procuring a passport, visa, airline tickets,
accommodation, information about the
destinations and attractions, local transport and
other services
• Tourism suppliers or the primary and secondary
constituents of the tourism industry need to
approach their potential customers and meet their
needs effectively and efficiently
 Intermediaries
• Those who come between…
– Producers/manufacturers
– And the end-user customer
• Independent organisations who assist
the producers to make the product
available to the customer
 Cont…
• Intermediary is a person or company that bring
buyers and sellers together either to create market
where the previously did not exist or to make
existing market work more efficiently and there
buy expand market size.
• The task of an intermediary is to link the suppliers
(producers) of tourism services and the consumers
• This is because consumers are spread all over the
globe
 Cont…
• The core duties of intermediaries is to bring
consumers or buyers and suppliers or sellers
into a business contact (together)
• Also, tourism intermediaries are referred as a
distributaries of tourism goods
• They also link the tourism supply and demand
• This can be directly or indirectly done
 Cont…
• Intermediary involves both private or government
operations
• The role of private sector in the organization of
tourism is very crucial.
• In most country which are in any manner
concerned with tour industry the private sector
play very important role.
• Private sector involve in selling the tourism product
and producing it as many individuals, companies
and cooperation are involved in promoting ,
developing and financing
 Cont…
• Travel distribution channels which are travel
agency and tour operator play key and crucial role
in the entire process of developing and promoting
tour.
• These emprise direct mail travel country in banks
insurance companies department stories
supermarket and community association.
• It is the travel agent who packages and processes
all the various of the country and present them to
the tourists.
 BENEFITS OF INTERMEDIARIES
• Intermediaries benefits on both producers or
suppliers and consumer/customers
• Benefits to Suppliers
– Producer are able to sell in bulk and so transfer risk
to the tour operator
– Supplies can reduce promotion cost
– Saves cost of setting up office and employing
workers
– Minimizes risk
– Bulk purchases ensure sustainability of a company
 Cont….
• Benefits to customers/consumers
• Consumers gain from the specialist knowledge of tour
they want due to the provision of expert knowledge
• Convenience as that all travel arrangements are
organized under one roof by an expert
• Saves money this is the fact the tour operators get a
services in a discount amount
• Greater variety and choices, latest information on all
products
• Minimizes risks and uncertainties about quality products
 Cont…
• It is the intermediaries who bring tourism
buyers and sellers together either to create
markets where previous did not exist or to
make existing markets work more efficiently
and thereby to expand market size.
 Principal Suppliers

Tour operators /wholesales

Travel agents/retailers

Clients/users/buyers tourists
 Travel Agents
• A travel agency may be an individual, a business
firm, or company which acts as an intermediary in
the sales and promotion of different travel related
services such as accommodation, travel information
and earns commission received on selling services
to its clients
• A travel agency can also be referred to as a retail
travel agency since it sells the various services
offered by the travel suppliers directly to its
customers
 Cont…
• TA acts as intermediaries serving between the
various service providers and travel consumers
• They sell and may, at times, market products and
services provided by the suppliers
• They play an important role in the development
promotion of travel sales
• TA assemble all the components of tourism products
and sell them to the tourist
• Travel Agents are also referred as ‘travel consultants’
 Cont…
• Travel agent is a person who has full
knowledge about tourist product:
• Destinations modes of travel, climate,
accommodation and other areas of service
sector.
• S/he acts on behalf of product
providers/principals and in return gets
commission.
 Cont…
• A travel agent’s job involves not only making
sales but also;-
– Gathering travel information,
– Researching travel product
– Analyzing options and
– Making recommendations.
• A travel agent may be an individual/firm or
corporations which are commonly known as
travel agency.
 Cont…
An agency means office of the travel agent or
organization where all travels goods and services
are assemble and coordinated for the smooth
conduct of travel agency business.
 It is a travel agency which packages and processes
all the attractions, accesses, amenities and
ancillary services of a country and presents them
to the tourists.
That’s why travel agencies are known as image
builder of a country
 Cont…
• A prospective travel agency is one which
– Makes arrangement of travel tickets (air, rail, road and
sea)
– Travel documents (passport, visa and other documents
required to travel,
– Accommodation,
– Entertainment and
– Other travel related services from the principal
suppliers.
– It may also secure
• Travel insurance,
• Foreign currency for the traveling people.
 Types of Travel Agency
• There are many ways in which TA can be
classified, but it is generally classified as follows;-
– Retail Travel Agency
– Wholesale Travel Agency
– Full Services Agency
– Commercial Agency
– Implant Agency
– Special Interest Travel Agency
– E-travel Agents or Online Travel Agents (OTA)
Bases for classification of travel agencies

• There are many ways in which travel agencies

can be classified but mainly all the
classification should follow the following
bases;-
– Services offered – being general or specialized
– Geographical presence – large or small
– Purposes – looks on the demands of the
consumers ie business or leisure?
– Type – either traditional or modern one
 Retail Travel Agency (RTA)
• These sells tourist products directly to the
public on behalf of the product suppliers and in
return gets commission.
• It may add a mark up cost on the services
• Some package tours are sold in two ways i.e on
a commission basis and mark up price.
• When a travel agency sells a tour on marked up
price it means that first it mark up cost of a tour
and sell it at higher rate.
 Definition of RTA
• According to Airline Reporting Corporation
(1987), “a retail travel agency is defined as a
business that performs the basic functions of
quoting fares and rates, books seats for
airlines, railways, makes reservations for
hotels, arranges for passports, visa, and other
documentation services and acts on behalf of
the tourism vendors”
 Cont…
• The mark up price is the difference between
retail price and whole sale cost.
• The main source of revenue for a retail travel
agency is the commission received from the
vendors and the mark up prices.
• However, the rate of commission differs from
organization to organization and travel
component to travel component.
 Cont…
• The service performed by a retail travel agents
are;
– Preparation of itineraries
– Transportation
– Accommodation
– Foreign exchange
– Travel documentation
– Special interest tours
 Wholesale Travel Agency (WTA)
• A WTA plans, organizes, develops and sells
package tours through a network of a retail travel
agency or directly to the prospective clients.
• A wholesale travel agency purchases tourist
product components in bulk and designs package
tours
• A WTA buys travel components from a vendor in
bulk and resells them to the another travel
business organizations.
 Cont…
• Wholesale travel agencies assemble package
holidays and sell them to the clients by retail
travel agencies.
• A typical package tour includes-air ticketing,
accommodation, and sometimes
entertainment, sightseeing and sport activities
• These packages are referred as package tours.
 Definition of WTA
• A wholesale travel agency is one which
assembles the different components of travel
and forms a package to suit the needs of
tourists
• A wholesale travel agency thus design package
tours and sells them under its agency’s name
Features of a wholesale travel agency
– It serves as a link between the principal travel
suppliers and retail travel agency
– It negotiates with the travel suppliers for best
possible rates on bulk booking
– It assembles the various travel components such
as hotel, airlines and ground transport
– It conducts research to know the changing
preference of tourist
– It markets and promotes its products through
advertising
 Full Services Agency (FSA)
• This organizes and handles all types of tours
for leisure free individual travelers, group
travelers, corporate travelers, for inbound,
outbound and domestic destination
• Individual departments work on the different
functions of travel agency
• Example of this is like: Leisure department,
trade fairs, accounts etc
 Commercial Agency
• Commercial agencies are specialized for meeting
the requirements of corporate travelers
• Such agencies are mainly located at the business
centres and cater services only to the business
travelers
• Walk-in or individual travelers are not served by
these agencies
• All the important documentation are prerequisite
for services to be catered to the clients
 Implant Agency (IG
• It is a branch office of a full-fledged travel
agency or tour operator functioning on the
premises of a corporate offices
• It handles all the travel arrangements of the
corporate office
• Travel arrangements includes search of
information, booking and reservation,
transportation, etc
 Special Interest Travel Agency (SITA)
• SITA specializes in creating tour programs for
special interests group
• Such as adventure, wildlife, religious i.e
Pilgrim
• It also specializes tour programs for
disadvantageous group in a society in a bases
for serving their needs
E-travel Agent or Online Travel Agent (OTA)

• These are the new generation travel agencies

• It is a web portals that allows consumers to
access information and makes online booking.
• This mainly used in developed countries and it
has a very high jacking problems hence
reduces the customers confidence
 Setting Up a Travel Agency
• A lot of planning goes into starting and setting up of
a travel agency
• Any kind of a business is risky and the person
involved should have a proper knowledge of the
product he/she is selling
• He/she should be clear about the product which
he/she wishes to sell
• Travel agent should decide for what kind of services
he/she want to venture in at initial stage of
planning
 Requirements of a Travel Agency
• The travel agency can be successful if it meets
the following minimum requirements;
– Enough finance to run the business
– A centrally located premises or near a business
centre
– Qualified and trained staff
– Approvals from government and other legal
organization
– Authorization to sell on behalf of principal supplier
 Infrastructure, location and adequate
finance
• For setting up travel agency, the financial
requirements are not very high
• Investments are mostly needed for the
following areas:-
– Buying or hiring of office space
– Furniture and computers
– Office stationeries
– Promotional materials
– Salary for the employee
 Cont….
• While setting up a travel agency, proper
thought needs to be given to the location of
the travel agency
• It should be near a business area, centrally
located or in areas where there is a demand
for travel
• What is so important is that research should
be done before deciding the location of the
travel agency
 Approvals by concerned organization
• A travel agency should have the necessary
approvals from the concerned organizations
• Example if the agency is into selling air tickets,
it has to get approvals from International Air
Transportation Association (IATA)
• Commission is paid only to the approved
travel agents
 Arguments against whether Travel
Agencies as an Intermediaries
1. Travel agencies currently add little value to the
tourism product, as they primarily act as booking
offices
2. Travel agencies merely manage information and
undertake reservations
3. Travel agencies are biased, in favors of principals
who offer override commissions and in-house
partners.
4. Experienced travelers are much more
knowledgeable than travel agencies
 Cont…
6. Technology enables consumers to undertake
most functions at home
7. Electronic travel intermediaries offer great
flexibility and choice
8. Re-engineering of tourism industry(e. g
electronic ticketing, no frills airlines) facilitates
dis-intermediation.
9. Visiting travel agencies is inconvenient and
time consuming
 Reasons/Arguments for the travel agency
as Intermediaries
1. Travel agencies are professional travel advisors
and offer valuable services and advice
2. Travel agencies use expertise to save
consumers’ times
3. Technology is difficult to use and expensive to
acquire for individuals
4. Much of the Market is computer illiterate
5. Electronic intermediaries primarily serve the
business market and are more expensive
 Cont…
6. Travel agencies can achieve better prices
through the right channels and deals and by
buying in bulk or through consolidators
7. Travel agencies reduce the insecurity of
travel, as they are responsible for all
arrangements
8. Internet transactions are not secured or
reliable yet and consumers are not willing to
provide credit cards details.
 The Tour Operator
• Tour operators are professionals who should
have all the required skills, expertise and
knowledge of organizing travel
• The tour operator assembles all the different
components of travel and sells it as a package
tour, to and from a destination, with complete
arrangements
• Most of the tour operators have their own fleet
of vehicle to cater to the transport segment
 Definition of TO
• Tour operator is one who has the
responsibility of putting the tour ingredients
together, marketing it, making reservation,
handling all financial and accounting aspects,
and selecting as well as managing tour
managers” (Poynter, 1993)
 Cont…
• Tour operators generally offer variety of
package tours to cater the needs of different
kinds of travelers.
• A wholesaler who sells tourist products
individually without assembling them into
Package tours is called consolidator.
• These are specialized in a particular product
component such as air tickets accommodation,
conference and conventions etc.
 Difference between travel agencies and
tour operators
Travel agency may deal with one component
of travel product like air ticketing while tour
operator offers a variety of tour programmer.
The size of business is large in case of tour
operator in comparison to travel agency.
Travel agencies get commission from agencies
and suppliers while tour operators get large
sum of profit/money
Tour operator is a key intermediaries due to
the following reasons
1. Tour operators offer professional travel services
and develop tourism packages by aggregating
packages from disparate services, offered by
individual principals.
2. Many holidays allow a degree of flexibility are
sometimes themed
3. Tour operators develop packages based on
extensive research and experience
4. A large part of the market is computer illiterate
 Cont…
5. Tour operators manage to reduce the total price of
the packages by operating charter airlines and by
negotiating prices with principals
6. The internet is still inadequate and unreliable,
especially for destination-naive or inexperienced
travelers
7. Tour operators reduce the insecurity of travel, as
they are responsible for all arrangements and can
compensate consumers when they products fail to
reach specifications
 TYPES OF TOUR OPERATORS
A. Inbound Tour Operators
• These are also known as incoming tour operators.
• Technically, they are the operators who receive
guests, clients/tourists and handle arrangements in
the host country.
• Essentially the tour operators need to adopt
innovative marketing strategies and should
introduce special interest tours to cater the
specially needs of all the clients from different
origins.
 Cont…
B. Outbound Tour Operators
Tour operators who promote tours to foreign
destinations may be business tours or leisure tours
are called outbound tour operators. e.g. Thomas
Cook and Sons. Etc
C. Domestic Tour Operators
 Domestic tour operators are those who assemble,
combine tourist components into inclusive tours
and sell it to the domestic travelers.
 Cont…
• In general these tour operators provide travel
services within the tourists’ native or home
country.
• The domestic tour operators operate within
the boundary of home country and offer
package tours to the travelers.
 Cont…
• D. Destination Management
Companies/Ground Operators
• These are commonly known as handling
agencies and their main function is to organize
tour arrangements for incoming tourists on
behalf of overseas operators.
• When a tour operator him/herself promotes
difficulties may arises.
 Cont…
• It is the ground operator then who by
handling the incoming travelers in the same
season but at different places ensures that the
entire operation is according to the package
tours or agreements
 Why Ground Operators?
• More often do not have close contact with suppliers,
governments, destinations and so on.
• It leaves no choice with companies but to appoint
handling agencies at the destinations. The reasons
are as follows:
– Introduction of new products.
– Lack of government regulations
– Lack of personal contract.
– Language problem
– Company cannot establish its own branch.
Factors to consider before the selection of
intermediaries
• Size of the business.
• Professional staff.
• Length of business
• Reputation and membership the agency has
with international and national travel and
tourism associations.
• Credit facilities available
 Functions of Tour intermediaries
• Tour intermediaries are currently be
recognizes as a vital component of travel and
tourism and have become an integral part of
travel and tourism industry at a global level
• They account for more than 90% of
international and 70% of domestic traffic
• The operation of each travel agency is based
on the scope of its activities and
organizational size
 Cont…
• The tour intermediaries have an active role in providing
quality services to the tourists
– Providing travel-related information
– Planning tour itineraries
– Liaisoning with the tourism suppliers/vendors
– Tour costing
– Ticketing ie domestic or international
– Reservation
– Documentation
– Foreign exchange (forex) services
– Travel insurance
– Organization of conference convections ie MICE
 Provision of travel information
• This is one of the most important and basic
functions of tour intermediaries
• The tour professionals should have a detailed
knowledge of the;
– Tourist destination
– The mode of transport
– Distances
– Different categories of accommodation sectors
– Shopping centre
– Health and security issues
 Cont…
• They should provide
– Up-date
– Accurate and
– Timely
• Information regarding various services and general
information about travel, etc.
• A good tour intermediary is one of a personal
counselor who knows all the details about the
products and also the needs and interest of the
intending traveler.
 Preparation of itinerancies
• Tourist itinerancy is a composition of operations
that are result of the study of the markets.
• A tourist journey is characterized by an itinerary
using various means of transport to link one locality
with another
• Preparation of different types of itinerancy is
another important function of a travel
agency/companies.
• A travel agent gives advice to intending travelers on
the type of holiday or business travel
 Liaison with providers of services
• Before any form of travel can be sold over the
counter to a customer contracts have to be
entered into with the providers of various service
• These includes transportation companies hotel
proprietors the providers of surface transport like
motor car or coaches for transfers to and from
the hotels and for sight-seeing etc and also for
general servicing requirements
 Planning and costing tours
• The contract and arrangements having been
entered into there comes the task of planning
and costing tours both for inclusive programmers
and to meet individual requirements
• The job calls for travel to those places which are
to be included in the itineraries.
• This job is intensively interesting and at the some
time challenging.
• The cost are done in relation with the
programmes included in an itinerary
• The tour costing is done in personal basis which
includes the hotel, meals, transfer etc
 Ticketing
 Selling tickets to clients using different modes
of transport like air rail and sea is yet another
important function of a travel agency
This call for a through knowledge of schedules
of various modes for transport such as Air
railways buses etc a person behind this should
be conversant with all these
Ticketing is however not an job as the range
and diversity of international air-fares is very
complex and varied.
 Cont…
• Computerized reservation system has in the recent
years rather revolutionized the reservation system
both for air and rail scats and also room in a hotel any
travel agencies are using this.
• This system comprises of computer net-work that can
be used by the travel agent to reserve an air or rail
communication as also accommodation in a hotel.
• Dealing with the settlement of accounts in all parts of
the world call for a through knowledge of foreign
currencies their cross-values and above all in traceries
of exchange control regulation which vary from
country to country
 Provision of foreign currency
• Provision of foreign currencies to in ending
travelers is another specialized activity of a
travel agency.
• Some of the larger travel agencies deal
exclusively in the provision an important
facility to intending travelers as it saves them
a lot of time and energy in avoiding visiting
irregular banking channels
Insurance
• Insurance both for person accident risks and
personal belongings
 Reservation
• It is a very important function of all types of travel
intermediaries
• The tour intermediaries after getting confirmation
and initial payment from the clients has to make
booking
• However, prior to reservation, a successful tour
intermediary should understand the needs and
requirements of the individual clients
• Once the booking is confirmed and payments is
made the tickets should be handed to the clients
Organization of conferences or convections

• Today, organization conferences, convection

and seminars have become a profitable
business
• Many of tour operators offer a MICE package
• The package include;
– Travel to and from the venue
– Accommodation at the venue
– Registration fee and facilities
 FORMS OF TRAVEL COMPANIES
• A business unit may be owned by one person
individually or by many persons jointly.
• The word ownership here refers to legal and
encompasses a number of rights and duties
• Basically, all forms of travel business (except
for proprietors) are owned, managed and
controlled by a group of individuals
 Cont…
• The selection of suitable form of organization is
based on various factors such as;
– Capital requirements,
– Legal formalities,
– Tax incentives and limited liabilities,
– Professional requirement and location,
– Nature and size of business,
– Stability and continuity,
– Financial and non financial incentives availabilities,
– Economic considerations and market factors etc
 Proprietorship
When a travel agency/tour operation business
is owned, managed and controlled by an
individual who is the sole owner and has sole
rights to profits S/he is called proprietor.
He is liable for all debts, losses, obligations and
taxes of the undertaking.
Practically, s/he brings finance, managers
activities, gets profits/income and takes all
decisions relating to the business.
 Cont…
• She/he also bears the risks of failure of business.
• Main features of proprietorship are that it is the easiest to
establish/dissolve and it has no existence apart from its owner.
• It provides self employment to many educated people and
helps in reducing the problem of unemployment.
• Advantages
– Low cost of establishing and organizing.
– Quick decisions.
– Flexibility in operation
– Only to file one tax return
– Free from legal restrictions
 Partnership
• Sole proprietorship is most suitable in cases
where most capital, limited managerial talent
and greater personal attention is require.
• However, if one wants to expand his/her
business/market scope and activities s/he
needs more finance and managerial talent.
• This would be possible with emergence of
some kind of an association
 Cont…
• A travel agency is said to be a partnership form, if
it is jointly owned by two or more persons ie 20 in
case of travel agency and tour operation business.
• Partnership is the relationship between persons
who have agreed to contribute money or money’s
worth and share profit or loss of a business carried
on by all or any one simple form of business with
an agreement among the partners to finance,
manage the operation and share the profits/losses.
 Cont….
• Advantages
– Easy formation
– Large financial resources
– Better management talent
– Lesser risks
– Division of labour
– Single tax return
• Disadvantages
– Limited financial resources
– Uncertain existence
– Unlimited liabilities
– Less public confidence
 Company/Corporate Firm
A corporation is a distinct and separate entity from
its share holders/owners.
It is formed by the law and is bound by the law.
A company is an association of persons incorporated
according to the law with a legal personality, which
is separate from the persons who constitute it.
It is an artificial organization with a distinct name,
common seal, limited liabilities, transferability of
shares and is endowed with a perpetual succession.
 Cont…
It has the rights like making contracts, right to sue and
be sued, to issue stocks and perform other business
related activities
Advantages of the corporate
 Perpetual existence
 Limited debts and obligations
 Separate legal entity
 Transfer of ownership/shares
 Economics of scale
 More tax option and incentives
 Expert management
Source of Income for Tour intermediaries

• The travel agency and tour operator's main

source of income is from the commission
• The commission structure differs from supplier
to supplier and also as per business given by
travel agency and tour operator to these
service providers
• It ranges from five (5%) percent to 20%
 Cont….
• The following are the common and main
sources of income for the intermediaries;
1. Commission on selling their products to the
clients
2. Incentives or override
3. Services charges
4. Mark up on tours
5. Wholesale fee
6. Representation fee
 Commission on selling their products to
the clients
• The industry suppliers pay these approved
agents a commission the services sold on their
behalf
• The commission is usually a fixed percentage
of the sales price of the services of the
product
• Is paid after the sale of services or product to
the consumers
 Cont…
• The commission is deducted from the final
payment and the balance is forwarded to the
principal
• Example: A client purchases a tour worth Tsh
200,000/=. If the commission is 10% for the
agent will retain 20,000/= and forward the
principal the net amount of Tsh 180, 000/=
 Incentives or Override
• In addition to the commission, some services
provides may pay incentives to the agents
who have given large amount of business in
terms of sales volume
• These incentives are referred to as override or
bonuses
• The rule may be the higher the sale the higher
will be the override rate
 Services Charges
• This is another source of revenue for tour
intermediaries which are charged for services
rendered to the clients
• For instance, for getting a passport or a visa
the travel agents may charge a client as they
do not receive a commission in a given
services rendered
• This is for those services with no commission
 Mark up on tours
• A travel agent buys the travel products from
the principal suppliers in the large volume at a
discount rate
• Then he/she creates his/her own cost for the
given package
• The agent will get the best prices for each
component of the package tour and adds a
mark up to the tour cost
 Wholesale fee
• Some of the wholesalers may not pay the
commission to the travel agents for selling
their tours
• Instead, they will pay a flat fee for each
reservation made
 Representation fee
• The principal supplier may not have their branch
offices in all the cities of the country or world
• In this case, the principal may appoint a general
sales agent, who could be the travel agent to
handle their business in these cities, so as to
generate higher sales
• The agent will handle the services of the
principal provider to promote sales
• The principal will pay a fixed fee an agent
 ….end….

Thank you for your attention